PERFORMANCE MEASUREMENT IN THE SERVICE
BUSINESS:
THE
FACILITIES
MANAGEMENT
FUNCTION
Maimunah Sapri1, Professor Amar Kaka
Alias 3
2
and Associates Professor Dr Buang
1-2
School of the Built Environment, Heriot-Watt University, Edinburgh, EH1 4 AS, UK
3 Head of Property Management Department, Faculty of Geoinformasion Science and Engineering,
Universiti Teknologi Malaysia, 81310 UTM, Skudai, Johor Malaysia
ABSTRACT
The nature of performance measurement has changed over the past few decades.
Generally performance measurement indicates successful management in the
fulfilment of organisation goals. In service businesses measuring customer satisfaction
and service quality has become an industry standard and as FM is becomes more
widely recognised as a component in the business value chain and corporate strategic
objectives, the adoption of performance indicators that relate directly to the core
business driver is key to success. This paper examines the state of knowledge of
performance measurement in a facilities management context, expounds and reveals
the role that performance measurement plays in the overall efficiency of the FM
service function in relation to service business operation. The paper suggests that a
fully developed performance measurement solution can deliver as a business tool
whilst acting as a driver in the innovation process of service organisation.
Keywords: facilities management function, organisation performance, performance
measurement, services business
1
ms86@hw.ac.uk
2 A.P.Kaka@hw.ac.uk
3 buang@fksg.utm.my
Sapri, Kaka and Alias
INTRODUCTION
Performance measurement is an area to which companies have paid much attention
recently. Performance is regarded as a major competitive issue (Tranfield and
Akhlaghi 1997). In a facilities management (FM) context, there is a wide range of
choices in measuring facility management performance reflecting the varied nature of
the field. The focus of FM skills and techniques should be in the area that contributes
to the overall management of a business by relating accommodation and support
infrastructures issues to business, financial and personal criteria (Barret 1992). As FM
is concerned with all aspects of the services delivery, research in this area attempts to
review the state of knowledge of performance measurement in FM and seeks to
explore measurement of service performance linked to the innovation process in
organisation. The discussion on performance measurement focuses on the the service
business operation in the overall efficiency of the FM function. Further the discussion
will expound the appropriate way in measuring service and drive the framework of
FM service performance measurement solution.
PERFORMANCE MEASUREMENT PRINCIPLES
The traditional view of performance measurement, determined by Teague and Eilon
(1973), is that it has three broad purposes: to ensure the achievement of goals and
objectives; to evaluate, control and improve procedures and processes; and to compare
and assess the performance of different organisations, teams and individual.
An early attempt at developing financial measure was made by Du Pont (Walters
1997). Du Pont, widely acknowledge as being the founder of financial performance
measurement, introduced a pyramid of financial ratios as early as 1903 (Anderson and
Mc Adam 2004). However in late 1970s and 1980s numerous authors expressed a
general dissatisfaction with traditional backward looking or lag accounting based
performance measurement systems (Anderson and McAdam 2004). In the 1990s
attention of performance measurement shifted to quality and consumer satisfaction. A
broader conceptualisation of business performance has been emphasised on indicators
of operational performance (i.e., non-financial performance) in addition to indicators
to measure business performance (Venkatraman and Ramanujam 1986).
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Performance Measurement in Services Business: The Facilities Management Function
Drucker (1993) described a traditional measure as inadequate for business evaluation
and failing to meet new business needs in that most measures are lagging indicators.
The argument was supported by Kaplan and Norton (2001) who claim that financial
measures are historical in nature as they report only on outcomes and the
consequences of past actions. Amaratunga and Baldry (2003) have summarised the
views advanced in debate to traditional performance measurement as follows:
•
Criticism of traditional management control (Brown and Laverick 1994; Stone
1996, Letza, 1996, Rangone 1997, Neely 1998).
•
Need to represent non-financial measures (Olve et al. 1999, Ernst & Young
1998)
•
Lack of prescription on how to implement the measures (Olve et al. 1999,
McFadzean 1995)
•
Lack of strategic focus (Hally 1994)
The debate and the criticism on the traditional performance measurement show that
financial performance measurement is not a solution to the measurement of business
performance.
For Nani et al. (1990) performance measurement systems were
developed as a means of monitoring and maintaining organisational control
“organisational control may be defined as the process of ensuring that an organisation
pursues strategies that lead to the achievement of overall goals and objectives”.
Hronec’s (1993) work defines performance measures as vital sign of the organisation
and how well the activities within a process or the outputs of a process achieve a
specific goal. For Zairi (1994) performance measurement is the systematic assignment
of a number of activities whilst Kanter (1995) claims that in today’s dynamic business
environment the emphasis has shifted to the “three Cs - concepts, competence and
connections- which drives from investments in innovation, education and
collaboration. As cited in Wilson (2000) the roles of performance measurement have
been intertwined with the premise that organisations achieve success by delivering
services with greater efficiency and effectiveness than their competitors (Ghobadian
and Ashworth 1994).
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Further themes relating to adding value to performance measurement systems have
been determined and analysed by Wilson (2000). These themes are;
•
Measurement for improvement which states measurement systems are service
function an only have a right to exists if they add value to the organisation
(Schalkwyk 1998).
•
The integration of broad measures which see the challenge for performance
measurement systems as being the ability to balance multiple measure (i.e.
cost, quality and time) across multiple levels (i.e. the organisation, the process
and the people (Hronec 1993).
•
Clear communication and dissemination. If information is poorly presented, it
may be misunderstood, poorly assimilated, or at the extreme, completely
ignored (Harvey 1984)
Amaratunga and Baldry (2003) described performance measurement as a process of
assessing progress towards achieving pre-determined goals, including information on
the efficiency by which resources are transformed into goods and services, the quality
of these outputs and outcomes, and the effectiveness of organisational objectives.
Therefore, the basic foundations of performance measurement are of quantifications
of elements which impact on organisational objectives, management control and
evaluation. Fitzgerald et al. (1991) examined performance measurement in services
businesses. They have synthesized the idea of performance measurement in the
service sector in six generic performance dimensions, namely competitive
performance, financial performance, quality of service, flexibility, resource utilization
and innovation. They concluded that performance measures fell within two broad
categories: end results, and means or determinants. The results were further
subdivided into “competitiveness” and “financial measures”. The means or
determinants were subdivided into four broad categories. These were: quality of
service; flexibility; resource utilization; and innovation.
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Performance Measurement in Services Business: The Facilities Management Function
FACILITIES MANAGEMENT OVERVIEW
FM could be said to have emerged with the integration of three main strands activity
which is property management, property operations and maintenance and office
administration (Kincaid 1994). More significantly it established a focus on the
management and delivery of the business “outputs” of both of these entities; namely
the productive use of building assets as workplaces (Varcoe 2000).
Over few years, facilities management has grown as a business discipline and also as a
scientific discipline, slowly finding and anchoring its position among the
organizations’ business processes. Nowadays, dedication of FM organizations to new
developments and continuous innovation processes seems to be the way to stay in
business, constantly exceeding customers’ expectations and adding value to the core
business of the client organization (Mudrak, Wagenberg and Wubben 2005).
FACILITIES PERFORMANCE AND INNOVATION
Innovation can be defined as a continuous process of bringing new ideas into practical
uses (Tidd et al. 2001). A broad definition as cited in Mudrak, Wagenbergh and
Wubben (2005) innovation is “a management process, involving multiple activities,
performed by multiple actors from one or several organisations, during which new
combinations of means and/or ends, which are news for a creating and/or adopting
unit, are developed and /or produced and/or implemented and/or transferred to old
and/or new market-partners (Gemuenden, 2003)”. According to (Tidd et al. 2001) the
innovation processes in product and service development are similar in principle;
however, they vary in specific routines and activities performed, by which the
innovation processes are enable. One of the more common debates concerning the
definition of innovation asks whether innovation should be regarded as a process or a
discrete event (Cooper 1998).
Either process or event innovation seems to be a synergized element to organisation
growth and to be competitive in the market. According to Cooper (1998)
understanding of learning processes is a key requirement for the facilitation and
optimisation of improvement and innovation in business process. By understanding
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Sapri, Kaka and Alias
and optimising learning process, managers in organisations will be able to achieve
behavioural change leading to performance measurement. With respect the
performance measurement and the innovation process in organisation it shows that
performance measurement is the driver. Buckler (1998) explained that there is a link
between learning and performance improvement and that by understanding and
optimising learning process, managers in organisations will able to achieve behaviour
change leading to performance improvement (see Figure 1). Therefore the growth in
performance measurement of the FM discipline seems to be related and has a direct
impact upon organisational performance through innovation.
Figure 1: The link between learning and performance improvement
Management led
Performance
Improvement
Behavioural
Change
i.e.
Innovation and
Incremental
Improvement in
Processes, Products and
Services
Will
require
i.e.
Changing
What we do
and
How we do it
Learning
Will
require
i.e.
Acquiring and
Developing ne
Knowledge
Attitudes
And Skills
Source: Buckler, 1998
FACILITIES PERFORMANCE MEASUREMENT
The focus of facilities management skills and techniques should be in the area that
contributes to the overall management of a business by relating accommodation and
support infrastructure issues to business, financial and personal criteria (Barret 1992).
Therefore the issue of measuring facility performance is a critical task to the facilities
manager. However, why should FM organisation want to measure performance? From
a classical management perspective there is a need to assess performance in order to
guide management decision making, as FM is a subset of general management,
performance measurement applies to management in FM context (Amaratunga,
Baldry and Sarshar 2000). Further more, as discussed earlier, performance
measurement is a driver to the innovation process within an organisation.
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Performance Measurement in Services Business: The Facilities Management Function
Alexander (1996) identifies measurement of performance as one of “three essential
issues for the effective implementation of a facilities strategy. Thus performance
measurement has become increasingly important both for reason of justification to
general management and to support management and practise within facilities
management organisation. The measurement of facilities has three main components,
namely, physical, functional and financial (Williams 1996). Physical performance
relates to the behaviour of the building’s fabric and embraces physical properties such
as structural integrity, heating, lighting, energy efficiency, maintainability, durability
etc. Functional performance concerns the relationship of the building with its
occupiers and embraces issues such as space, layout, ergonomics, image, ambience,
communication, health and safety and flexibility, etc. Finally, financial performance
arises from the physical and functional performances of the building and comprises
capital and recurrent (life-cycle) expenditures, depreciation and efficiency of use etc.
For Amaratunga and Baldry (2003), the contribution made by FM will be judged by
an organisation’s stakeholder over a wide range of performance criteria, including the
hard metrics of finance and economics. FM is seen to be able to contribute to
performance of an organisation in many ways, including strategy, culture, control of
resources, service delivery, supply chain management and the management of change.
Quality, value and the management of risk emerge as significant factors. Thus it is
important to have systems to measure the effect of the FM functions on an
organisation’s core business together with systems to measure FM’s own
performance.
There is wide range of choices in measuring facilities management performance
reflecting the varied nature of the field. It regarded as a major competitive issue
(Kincaid 1994). The facilities manager must understand the nature and the business
organisation and the work process in order to derive effective and efficient
measurement tools. Besides this the facilities manager may also have to clarify the
purposes of measurement before deciding upon the performance measurement
technique to be applied.
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PERFORMANCE MEASUREMENT IN SERVICE BUSINESS
Service industries are an important and growing sector of the UK economy,
functioning in an increasingly competitive environment (Fitzgerald et al. 1991). The
focus of competition is changing in many cases has long since changed from simply
competing on price to competing on a range of other factors such as quality, product
and service innovation and flexibility of response to customer needs.
The service sector is diverse, embracing such things as tourism, financial services,
health care, catering and communications. According to Fitzsimmons and
Fitzsimmons (1998), service lie at the very hub of economy activity in any society and
Looy, Gemmel and Dierdonck, (2003), determined service becomes a label covering a
wide variety of business and have distinct the categories of service as follow:
•
Distribute services include transportation, communication and trade.
•
Producer services involve services such as investment banking, insurance
engineering, accounting, bookkeeping and legal services.
•
Social services include health care, education, non-profit organizations and
government agencies.
•
Personal services include tourism, dry cleaning, recreational services and
domestic services.
As services accounted for 64 per cent of UK gross domestics product in 1989
(Fitzgerald et al. 1991), it is an inescapable fact that services are critical cost
dimension to the nation’s competitiveness. Therefore performance measurement is a
key factor in ensuring the successful implementations of company’s strategy. The
need for an alternative and more comprehensive performance measurement system
has encouraged several researchers to explore the alternative possibilities (Ghobadian
and Ashworth, 1993). Ray and Sahu (1990) mentioned that organizational
performance is a multidimensional entity and should be linked to the desired
outcomes.
In their work, they proposed a methodology based on the construction of a “utility
value function” for the performance variables. The authors recommended the use of
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group communication processes such as the Nominal Group Technique, Delphi
Technique or Opinion Surveys in the identification of desirable outcomes and decision
makers’ preferences. The key measures of performance identified were: productivity;
effectiveness; efficiency; and quality. The authors argued that the methodology
facilitates the quantification of subjective as well as hard data. Furthermore, they
argued that the proposed approach is suitable for application in both manufacturing
and service industries. Mclaughlin and Coffey (1990), reviewed the service
productivity models and the measurement issues. They proposed a classification
scheme based on complexity of inputs and outputs, degree of customization and level
of aggregation to assist the selection of the appropriate productivity measure.
Fitzgerald et al. (1991) examined performance measurement in for-profit services
businesses. They have synthesized the idea of performance measurement in service
sector in six generic performance dimensions which are competitive performance,
financial performance, quality of service, flexibility, resource utilization and
innovation. They concluded that performance measures fell within two broad
categories: end results, and means or determinants. The results were further
subdivided into “competitiveness” and “financial measures”. The means or
determinants were subdivided into four broad categories. These were: quality of
service; flexibility; resource utilization; and innovation.
However Evans and Lindsay (1999) suggest that there are a number of approaches to
developing a broad set of performance measures. Their work in performance
measurement is focusing on the important of relevant data and information. They
determined that measurement is the act of quantifying the performance dimensions of
product, services, process and other business activities. Measures and indicators refer
to the numerical information the results from measurement and suggest a business
performance scorecard often consists of five key categories as follows:
•
Customer satisfaction measures: customer satisfaction measure includes
measures of perceived value, rates of complaint, customer retention, gain and
losses of customers, and recognitions from customers and independent
organization.
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•
Financial and market performance measures: generally tracked by senior
leadership to gauge overall company performance and are often used to
determined incentive compensation for senior executives. Measures may
include return on equity, return on investment, operating profit, pre-tax profit
margin, earnings per share, and other liquidity measure. A key financial
performance indicator is the cost of quality. Marketplace performance could
include market share measures of business growth, new product and
geographic markets entered and percentage of new product sales as
appropriate.
•
Human resources measure: HR measures can relate to employee well-being,
satisfaction, development, work system performance and effectiveness.
•
Supplier and partner performance measures: supplier refers to providers of
good and services. Key measures of supplier performance re quality, delivery
and service and price.
•
Company-specific measures that support company strategy: most companyspecific measures relate to product and service quality, process performance
and other factors that drive the organization from strategic view point.
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Performance Measurement in Services Business: The Facilities Management Function
Figure 2: Business Performance Measures and Indicators
Customer
Satisfaction
Perceived value
Overall satisfaction
Complaints
Gains and losses of customer
Customer awards/recognition
Financial
Financial
And
Market
Market
Business
Performance
Human
Resources
Supplier
Company
Specific
Return on equity
Return on investment
Operating profit
Earning per share
Market share
% new product sales
Absenteeism
Turnover
Employee satisfaction
Training effectiveness
Grievances
Suggestion rates
Quality
Delivery
Price
Cost
Defects and errors
Productivity
Cycle time
Regulatory/legal compliance
New product introduction
Community services
Safety
Environmental
Source: Adapted from Evans and Lindsay, 1999.
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FM
FUNCTION
AND
SERVICE
PERFORMANCE
MEASUREMENT
Most services are provided through facilities (Brackertz and Kenley, 2002) and it has
been suggested that facility performance measurements should relate to the main
business indicators for the primary task such as customer satisfaction or service
delivery (Walters, 1999). As an integrated approach in managing the workplace,
service is one of the key components for the facilities manager to consider in
achieving the goals of the organisation. In service provision, facilities management is
concerned from the major strategic decisions to very detailed decisions such as
posting the signs to the ladies’ toilet in restaurant (Looy, Gemmel and Dierdonck
2003). Therefore measuring service performance is crucial to the facilities manager.
Applied models that link facility performance measurement to organisational strategy
have, to date, been limited (Brackertz and Kenley 2002). Bitner (1992) notes that in
service firms the importance of the physical setting depends on the nature of the job as
well as the consumption experience. Consequently she presents a typology of service
environments or “servicescape” According to (Looy, Gemmel and Dierdonck 2003),
the customer perceives the servicescape holistically. This includes environmental
dimensions comprising ambient conditions, spatial layout and process and sign,
symbols and artefacts.
Ambient conditions refer to largely background characteristic such as noise,
temperature and scent. In short, all the elements of our human environment affect
human five senses. Spatial layout and process includes elements of the environment
that are closely related to the core element of service and it is these things that are
necessary to deliver the service. These dimensions refer to the method of arrangement
and the physical and psychological effects to the customer. The other dimensions are
sign, symbols and artefacts. It is physical environment that serves as an explicit or
implicit communication to its user in relation to the workplace (see figure 3).
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Performance Measurement in Services Business: The Facilities Management Function
Figure 3: Servicecape Environment
Ambient Conditions
Temperature, Air quality
Noise, Music, Odour etc
ENVIRONMENTAL
DIMENSIONS IN
SERVICECAPE
Space Function Layout
Equipment, Furnishing, etc
Sign, Symbols & Artefacts
Signage, Personal artefacts
Style of décor, etc
Source: Looy, Gemmel and Dierdonck 2003
BENCHMARKING AS TECHNIQUE/TOOL IN MEASURING
FACILITIES SERVICE PERFORMANCE
Benchmarking is essentially a cost reduction method (McDougall and Hinks 2000).
The principle of benchmarking evolved out of the total quality management
movement and allows managers to place their performance measurement in context
(Camp 1989). It is the most powerful technique for gaining and maintaining
competitive advantage (Codling 1992). Sarkis (2001) outlines, from a manager’s
perspective, that benchmarking has been defined as a continuous, systematic process
for evaluating the products, services and work processes of organisations that are
recognised as representing best practices, for the purposes of organisations
improvement.
In facilities management, benchmarking as a performance measurement technique is
well established. The application of benchmarking to facilities management
performance criteria is now common within large organisations (McDougall and
Hinks, 2000). It is the ideal tool for setting corporate goals and transforming them into
tangibles which are delivered to the end customer and it is the tool that enables the
senior manager to answer questions such as: Where are we now? Where do we need to
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be? How do we get there? How could we remain there? The desired standards of
performance are therefore to optimize process performance in order to deliver total
quality and 100 percent value to the end of customer (Zairi 1994)
Benchmarking within facilities management began to appear around 1984 when the
International Facilities Management Association (IFMA) started to collect data on
facilities trends and demographics. This was expanded in 1987 to include occupancy
costs, which coincided with the initial interest in such data in the UK (Varcoe 1996).
Gilleard and Yat–ling (2004) state that facilities management benchmarking issues are
typically driven by financial, organisational, change management and customerrelated needs. They may be either internally focussed or external driven. Therefore it
puts pressure on FM teams to value customer driven issues such as delivery of quality
and timely services. It also fails to take into account how an organisation performs at
the strategic level, whether from the worker or workplace perspective. The
Department of Trade and Industry, in London has produced an executive guide and
point out the importance of benchmarking against:
•
The best you can find whether within your industry or outside
•
What the relevant to your customer’s view of what is important
•
That thing that effect financial performance
In a facilities management context, many people think that benchmarking is only
about comparing cost levels. However, Wauter (2005) works revealed there are
another numerous aspects of facilities management than it can be benchmarked.
Several of the aspect revealed is as listed below.
•
Space use. Benchmarking the space use is a prime as this drives all of the
premises costs and the floor areas need to be known for the purpose of
comparing costs of maintenance, cleaning, etc.
•
FM management. Benchmarking the effectiveness and cost of the facilities
management operation on a strategic/tactical level
•
Computer aided facilities management systems. Benchmarking of the costs
and effectiveness of the help desk.
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Performance Measurement in Services Business: The Facilities Management Function
In addition, Hinks and Mcnay (1999) emphasize the need to measure performance
gaps between service delivery and customer satisfaction. Hence Hinks and Mcnay
(1999) stress the need to rank benchmark criteria, linking these to performance and
service in such a way that their overall influence may be evaluated against business
driven imperatives. Further, Hinks and McNay (1999) suggest the application of a
management by variance tool. The tool identifies business and facility key
performance indicators (KPI), helping to create a rank order among the benchmarking
criteria.
Applying benchmarking to service performance is too new a concept to reach any firm
conclusions. Further research is required.
EMERGING RESEARCH NEED
Generally this paper has determined an area of proliferation in the measurement of
FM performance. Measuring facilities performance contributes to the organisation’s
success in the innovation process. Benchmarking is among the accepted approaches
involved in measuring ‘hard’ and ‘soft’ issues in facilities performance. Focusing on
measuring service performance in a facilities management context, benchmarking
seems to be the most common approach used. However questions to be asked as an on
going research before applying a benchmarking technique as follow.
i.
How does customer value the service performance and how to distinct the
service it self?
ii.
What are the mechanism to measure the service performance and how to
measure?
iii.
How to differentiate between the appreciation of service provide with the
physical environment.
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CONCLUSIONS
Performance measurement is an established concept that has taken on renewed
importance in a variety of organisations. In a facilities management context
performance measurement makes an important contribution to organisational success
in terms of effectiveness, efficiency and adding value. This paper suggests that the key
components that impact on FM implementations are a synergistic blend of “hard” and
“soft” issues. In principle benchmarking seems to be the technique that can be applied
in measuring facilities service performance. However it is important to highlight that
the characteristic of service itself is very subjective and this needs to be addressed if
any objective data is to be obtained.
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